When the output gap is positive, it represents ________ gap, and when it is negative, it represents ________ gap.
A) a recessionary; an inflationary
B) an inflationary; an employment
C) an inflationary; a recessionary
D) an employment; an unemployment

Question

Quizplus · Accepted Answer

A positive output gap occurs when actual output is above potential output, leading to inflationary pressures, hence an inflationary gap. A negative output gap happens when actual output is below potential output, indicating underutilized economic resources, which is known as a recessionary gap.

When the Output Gap Is Positive, It Represents ________ Gap